Benefits of International Trade: five questions to try now
Real questions, the answer key from the mark scheme, and the explanation that goes with it. No account needed to answer them.
Cross-board concept practice · originally a CIE 9708 question, used here because the concept is the same. It is not IB Economics past-paper material.
Question 1
The introduction of the euro as the common currency of much of Western Europe created a powerful economic group. What is least likely to have been the intention?
Answer: D.
This is the least likely intention of introducing the euro as the common currency. The primary goal of the euro was to facilitate economic integration within the eurozone countries and promote internal trade and economic growth among the member states. The focus was on creating a larger and more stable single market through the elimination of currency exchange costs and fluctuations, which in turn was expected to lead to increased trade among eurozone countries.
Enhanced international trade with non-members was not the immediate goal of introducing the euro. While a stronger eurozone might indirectly benefit its members in their international trade relations, the main aim was to boost economic activity within the region itself. Additionally, the euro's impact on international trade with non-members could be influenced by various other factors such as global economic conditions, trade agreements, and competitiveness of the eurozone economies, rather than solely relying on the introduction of the euro as the common currency.
Cross-board concept practice · originally a CIE 9708 question, used here because the concept is the same. It is not IB Economics past-paper material.
Question 2
What is the least likely outcome for participating countries of a move towards freer trade?
Answer: B.
Explanation:
A move towards freer trade generally leads to greater product choice, increased international specialisation, and higher standards of living due to factors such as improved efficiency, access to new markets, and economies of scale. However, it is less likely to lead to a more equal distribution of income.
When countries engage in freer trade, there may be winners and losers in terms of income distribution. Industries or workers in sectors that face increased competition from cheaper imports may experience job losses or reduced wages, leading to income inequality. On the other hand, industries that are more competitive in the global market may benefit from increased trade.
Therefore, while freer trade can bring about various benefits, including the ones mentioned in options A, C, and D, it is less likely to result in a more equal distribution of income, making option B the least likely outcome.
Cross-board concept practice · originally a CIE 9708 question, used here because the concept is the same. It is not IB Economics past-paper material.
Question 3
Why might an unfavourable movement in a country’s terms of trade benefit its economy?
Answer: D.
Explanation:
When there is an unfavorable movement in a country's terms of trade, it means that the prices of the country's exports are decreasing relative to the prices of its imports. Despite this initially sounding negative, an unfavorable movement in the terms of trade can actually benefit the economy due to the following reasons:
1. Boosting Export Competitiveness: A decrease in the prices of a country's exports relative to its imports can make the country's goods more competitive on the international market. This means that other countries may find the country's goods more attractive due to their lower prices.
2. Increased Demand for Exports: As the prices of exports decrease, foreign consumers may be more inclined to purchase the country's goods. This can lead to an increase in the demand for the country's exports and potentially boost export revenue.
3. Growth in the Export Sector: With the increased competitiveness of exports, the country's export sector may experience growth. This growth can lead to increased production, job creation, and overall economic expansion.
While the other options might have some validity in specific contexts, they do not directly address how an unfavorable movement in terms of trade can benefit an economy. Therefore, option D is the most appropriate choice given the question.
Cross-board concept practice · originally a CIE 9708 question, used here because the concept is the same. It is not IB Economics past-paper material.
Question 4
A developing country relies heavily on the production of a primary product for its national income.
Which change will make it more likely that the country will benefit from its participation in international trade?
Answer: A.
Cross-board concept practice · originally a CIE 9708 question, used here because the concept is the same. It is not IB Economics past-paper material.
Question 5
A country takes no part in international trade and its domestic market price is Pd. The country decides to engage in free trade and the market price rises to the world price (Pw). price quantity O Pw Pw Pd Sd Dd X Y Z What happens to consumer surplus and producer surplus when the economy engages in free trade?
Answer: B.
Explanation: When a country engages in free trade, and the market price rises to the world price, domestic consumers will face a higher price (Pw) compared to the previous domestic market price (Pd). This results in a loss for domestic consumers, represented by area X + Y, as they are now paying more for the same quantity of goods.
On the other hand, domestic producers will benefit from the higher world price as they can now sell their goods at a higher price. This gain for domestic producers is represented by area Z. Therefore, domestic producers gain Z only.
Overall, the increase in consumer surplus (Z) gained by producers is not enough to compensate for the decrease in consumer surplus (X + Y) incurred by consumers. Thus, the correct answer is B. Domestic consumers lose X + Y.
What this practice covers
These questions are drawn from past Cambridge papers, mapped across to this topic because the concept is the same. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
What examiners see students get wrong here
These are the errors that cost marks on benefits of international trade, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Explaining gains from trade using absolute advantage when the question is about comparative advantage.
- Comparing absolute output figures instead of opportunity cost ratios.
- Forgetting that the terms of trade must lie between the two opportunity cost ratios for both countries to gain.
- Treating the assumptions (no transport costs, constant returns, factor immobility between countries) as realistic rather than as limitations to evaluate.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: Benefits of International Trade revision notes.